For those who are unaware of the history of the AMT tax, it was created by Congress as a means of ensuring that the wealthy were unable to artificially lower their tax bill by utilizing a series of loopholes.
However, inflation is now causing more and more middle class people to wonder how they can reduce their AMT tax. Fortunately, there are a number of relatively simple methods for doing so, all of which can be easily implemented by those who wish to learn more about the best ways to reduce this cumbersome tax bill. Be sure to read on and learn more.
7 Ways To Reduce AMT Tax
1. Managing Miscellaneous Itemized Deductions
Sometimes, an AMT tax might be triggered due to events that only took place over the course of one year. Learning how to reduce your AMT tax is all about noticing these events and working around them. For example, if your itemized deductions are causing the tax to be triggered, be sure to stagger them so that they are not all occurring during the same fiscal year. This goes for property taxes and reimbursed employee expenses.
2. Proper Stock Option Planning
While employees who obtain incentive stock options are typically overjoyed, this joy can turn to sadness when they discover that they have no idea how to reduce the AMT tax that is triggered as a result. Holding the stock for a significant length of time might seem like the best idea at the time, but when there is a major difference in the exercise price and the market price, this can affect AMT tax.
3. Get Rid of Your Private Activity Municipal Bonds
The income derived from these bonds is taxable under the regulations established by the AMT. Those who currently possess significant holdings of this type may want to take the time to look into funds that are AMT free.
4. Reducing Taxable Investment Income
You certainly cannot reduce your salary and if you would like to reduce the amount of taxable income that you are bringing in, harvest your investment losses on an annual basis to offset any capital gains that you are making and take a moment to consider the benefits of tax free municipal bonds.
5. Make The Switch To Itemized Deductions
While the standard deduction has been removed from AMT taxation, there are still certain itemized deductions that will remain in place going forward. Those who originally used standard deductions should re-do their tax return and change them to itemized.
6. FSA and HSA Contributions
If you establish either of these accounts, any contributions that are made towards each of them allow you to lower your gross income and reduce your AMT tax bill. Those who have predictable and fixed costs each year regarding their medical expenses each year benefit greatly from these contributions.
7. Make The Maximum Contribution To Your Retirement Fund
This last tip is very easy to implement. All you need to do is make the maximum contribution to your 401K or any other employer endorsed retirement plan. This lessens your gross income and your taxable income.
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